How Iraqi militias laundered money for Iran through global payment networks

Yahoo

2 days ago

US and Iraqi authorities revealed a complex scheme involving prepaid cards that funneled illicit funds to Iranian-backed terror militias.
Iraqi terrorist militia groups figured out how to extract illicit funds for Iran from Visa and Mastercard payment networks, the Wall Street Journal reported on Saturday.
According to the report, at the start of 2023, cross-border Visa and Mastercard transactions in Iraq generated about $50 million. By April of the same year, that figure had soared to $1.5 billion.
The militias, which include Kataib Hezbollah, the Badr Brigade, and Asaib Ahl al-Haq, have helped the Islamic Republic avoid sanctions in what the US Treasury called a 'clandestine network of financial facilitators.'
Iraq has both an official dollar exchange rate and a higher, unofficial rate. This allows individuals to buy prepaid cards in Iraq, withdraw the money elsewhere in the Middle East at Iraq's lower official rate, and then return home to convert it into dinars at the higher rate. The process has generated gains for participants of up to 21%.
To generate these massive gains for themselves and Tehran, the militias acquired large amounts of Mastercards and Visa cards loaded with money, transported them back to the United Arab Emirates and other neighboring Gulf states, and withdrew the money, the report said.
The Treasury told the Wall Street Journal that the militias likely used the financial graft to buy weapons and finance terror operations. The cash was also likely distributed among the cardholders for their personal use.
The cardholders who participated are estimated to have made nearly $450 million in profit in 2023 alone. A source familiar with the matter said that the foreign card networks are estimated to have made about $120 million between them.
Mastercard and Visa profited from the transactions by charging at least 1% to 1.4% on cross-border transactions. US Treasury officials reportedly notified the companies of the exchanges in the fall of 2024, but it took them months to take control of the transactions.
Although the cash flow eventually decreased after the card companies reined it in, transactions still ranged from about $400 million to $1.1 billion a month until early 2025. US and Iraqi officials said that warnings to the card companies about the suspicious activity went unheeded for months.
The Treasury recently asked the Central Bank of Iraq to formally block more than 200,000 cards used by militia members. The Iraqi card issuers that partnered with the card companies were not under any sanctions, so there are no public allegations that Visa or Mastercard violated US sanctions.
The companies said they had acted quickly to limit transactions after the Treasury presented the fraud evidence.
'Ongoing government engagement is built into our programs so that we can quickly look into claims, identify the situation, and take action as appropriate,' Mastercard spokesman Seth Eisen said. 'That's exactly what we have done with the US government on this matter from a very early stage,' he added.
'Central to our operations is a commitment to ensuring that transactions on our network do not violate the law… When we identify or are alerted to any suspicious or illegal activity, we take action,' said Visa spokeswoman Fletcher Cook.
In early 2023, the Central Bank of Iraq took steps to keep money circulating in the economy after international wire transfers were restricted. The bank allowed payments with cash and debit cards outside Iraq to be made at the official conversion rate, currently 1,320 Iraqi dinars to the dollar, which was cheaper than what was available in Iraq's currency markets. This policy sparked a surge in debit card usage for currency arbitrage.
Militia couriers smuggled these cards into the UAE, Turkey, and Jordan. Witnesses described Iraqis lining up day and night at ATMs in Dubai with stacks of prepaid cash cards, withdrawing money nonstop.
They then returned the funds to Iraq either through informal hawala networks or by electronic transfer. Once home, they converted the dollars into dinars at the higher unofficial market rate—close to 1,600 dinars to the dollar at its peak in 2023—pocketing the difference. Although that rate has since fallen to about 1,400 dinars, regulators in Iraq and the UAE responded by limiting daily withdrawals and cracking down on card smuggling.
Authorities arrested dozens of Iraqis carrying thousands of cards worth millions at airports and border crossings. In one case, a traveler in Najaf was found with 300 cards hidden in cigarette packs; in another, Iranians and Iraqis were caught smuggling Mastercards into Iran.
The militias adapted by persuading merchants in the region with Visa and Mastercard access to process fake purchases in exchange for a commission.
Bankers described a scenario in which a luxury goods shop in the UAE would charge a Visa or Mastercard $5,000 even though no sale occurred. For a 5% fee, the shop would hand over the cash or the equivalent in UAE dirhams. The card company would debit the transaction at the official Iraqi rate, and the funds would be transferred back to Iraq for currency conversion.
The militias often repeated this process endlessly, profiting at every step.
Eventually, scammers acquired point-of-sale machines commonly used by restaurants and shops, according to US and Iraqi officials. At so-called POS farms, they processed fake transactions on dozens of devices, often using virtual private networks to hide their locations.
Iraqi officials admitted they lacked sufficient controls to prevent what they described as rampant fraud. US authorities said they initially failed to spot the flaws, partly because card settlements are less scrutinized than traditional wire transfers. Iraq's heavy reliance on cash and weak oversight of card issuers made the problem worse.
Authorities had some success reining in the scheme. After restrictions on wire transfers, funds flowing through Western Union and MoneyGram soared, surpassing $1 billion in March 2023 and reaching $1.7 billion in June. Western Union acknowledged the surge in Iraqi transactions in its earnings statements and noted ongoing discussions with US and Iraqi regulators.
US and Iraqi authorities imposed new limits on monthly remittances, prompting Western Union and MoneyGram to close accounts at multiple Iraqi banks. As a result, cross-border flows dropped to about $110 million a month by October 2024.
Western Union declined to comment, and MoneyGram did not respond to requests for comment.
Despite enforcement actions, new loopholes emerged. When Baghdad's First Iraqi Bank launched Visa Direct in early 2024, the bank's Visa cardholders sent $1.2 billion overseas in just two months. One account holder alone transferred more than $5 million a day to 11 Indonesian accounts. The Treasury and the Federal Reserve raised concerns, and Visa suspended the service after 10 weeks. Visa and the bank did not respond to questions about Visa Direct. However, stopping individual services did little to curb the fraud, and the card business continued to grow. By 2024, Iraq had 17 licensed card issuers, up from five in 2017.
Particularly concerning was the Qi Card, Iraq's most popular debit card, issued to millions of pensioners, government workers, and militias. Usage soared from about $10 million a month in early 2023 to more than $500 million a month by early 2025. Some militia commanders reportedly seized rank and file members' cards or created fake names to secure extra payouts, an Iraqi banker said.
Even after the defeat of ISIS in 2019, the Popular Mobilization Forces, an umbrella group of mostly Shi'ite militias, grew more influential in both the government and financial sectors. By early 2025, more than 200,000 militia members were receiving salaries through Qi Cards, giving them significant leverage over the illicit card trade. The Treasury recently asked Iraq's central bank to block Qi Cards issued to militias.
Qi Card's parent company, International Smart Card, said it 'no longer provides any services to the Popular Mobilization Forces (PMF).' Bahaa Abdul Hadi, the 55-year-old founder, said the company had taken steps to reassure the Treasury and the Federal Reserve that no cardholders were under US sanctions and that no militia members had Qi Cards usable outside Iraq. 'The only service provided to PMF cardholders was the transfer of outbound salaries from their employer,' the company said.
US and Iraqi officials said funds could easily be transferred to other cards that work internationally.
Data on card usage confirmed the scale of the fraud. One in five transactions by foreign cardholders in the UAE in 2024 involved an Iraqi debit or cash card, even though only one in 250 travelers was from Iraq. Many payments went to businesses in free trade zones or high-end jewelers rather than the usual tourist spots. Mastercard's Global Compliance Team reviewed Yana Banking Services in August 2023 and found 'no customer risk rating is performed, and no risk ratings were reflected on eight cardholder and three merchant files.' Yana was temporarily banned from issuing new Mastercard-branded cards but was later reinstated after addressing the violations.
'The goal is to ensure they avoid further violations of Mastercard standards or regulatory requirements,' Eisen said. 'We reserve the right to revisit any allegation to ensure this compliance.' Yana did not respond to requests for comment.
In March 2025, Mastercard blocked more than 100,000 Iraqi-issued cards and removed 4,000 merchants in the UAE. Half of the cards came from International Smart Card, the US, and Iraqi officials said. 'Information about Qi Card and International Smart Card that Mastercard received from government agencies was compiled with existing information and acted upon accordingly,' Eisen said.
In April, Visa flagged 70,000 Iraqi cards for potential fraud and blocked about 5,000 UAE vendors. Some cards were later reinstated after review.
The Central Bank of Iraq also capped cross-border transactions at $300 million a month and limited each cardholder to $5,000 monthly. The bank hired K2, a US financial crimes consulting firm, and required issuers to bank with an Iraqi institution that has a US correspondent bank. The US Treasury blacklisted three Iraqi card issuers, all Visa or Mastercard partners, for suspected ties to militias.
One issuer, Al Saqi Electronic Payment Company, is affiliated with the Holy Shrine of Al Abbas. Al Saqi did not respond to The Wall Street Journal's requests for comment.
Visa stopped processing Al Saqi cards, but Al Saqi's website still features Visa logos, promising 'all the advantages offered by Visa, including ease of use, global acceptance, and high security standards.'